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McKinsey Medium Market Entry Profitability Pricing Strategy

Center Stage

#Theatre / Producing #Theater #Producing #Entertainment
ProHub Comment

This case tests the candidate's ability to build financial frameworks for an unfamiliar industry, perform quick profit margin calculations, and apply pricing strategy principles to maximize revenue. The case progresses logically from show selection to pricing optimization to marketing allocation, requiring both quantitative skills and creative problem-solving.

Estimated Time 15 minutes
Difficulty Medium
Source NYU
50 / 100
You’ve been approached by a producing team who have a hold on a major Broadway theater for 10 weeks next summer. Theater is a very expensive industry, and they’re trying to determine the best show to run during this window. They’ve narrowed down to three options: a revival of Beauty and the Beast, the Pulitzer-Prize winning play To Kill a Mockingbird, and a one-man show starring Steve Martin called “Steve Live.” The team has less than two weeks to make a decision in order to start rehearsals on time. You’ve been hired to assess which show is the best one for the producing team to mount, and how they should price tickets to maximize profit margins.

Clarifying Information

  1. There are 41 active Broadway theaters in NYC. Currently 22 host musicals, 18 host plays, and 1 hosts a one-person show.
  2. Because Broadway theaters are limited in the number of seats available, revenue growth is found primarily in ticket prices.
  3. Over the past year, tickets have steadily increased in price by 10%
  4. Typical prices are $150/ticket
  5. Their goal is to achieve highest profit margin possible
  6. This producing team is very successful – they have launched all three types of shows before, on and off Broadway (but have never produced one of these three particular shows before)
  7. The theater’s maintenance fee is $1000/show
  8. They will do 8 shows/week
  9. More details on costs in Exhibit 1
  10. Ideally shooting for 20%+ profit margins
  11. The producing company can sell things (i.e. concessions, t-shirts) within the theater
  12. “Steve Live” is a brand-new production